Interest rates and jackpots

The current tough economy – and the low interest rates it has brought on – are having an effect on many things, including the jackpots in games like Powerball® and Hot Lotto™.

Sales are the biggest factor that determine the amount of a lotto jackpot, and lottery sales in many states including Iowa have been down in recent months. But interest rates are another important factor.

That’s because bids are taken from investment firms just before a jackpot drawing to see what type of return could be achieved if the money from the sale of tickets for that drawing were invested.

If there’s a jackpot winner in that drawing and the winner chooses to receive the prize in annuitized payments over time, the money on hand from the sale of tickets is invested and earns interest during the years that the payments are made. The principal amount invested plus the interest over time totals the annuitized jackpot amount.

But with such a low rate of return lately, in some instances investments cost more to make than it would have been possible to get in return. That has caused jackpots to grow more slowly than they did in better economic times.

With jackpots that start at $20 million in Powerball and $1 million in Hot Lotto, there’s a lot of money on the line in the games’ drawings no matter what, but even the big prizes are signs that the current economy has had far-reaching impacts.